I have a good flip deal at 70 % arv, but my lender is still nervous

[Noble Evans]

Hi guys, my name is Noble Evans and I am new to BP on the forums. I am also a rookie in the investment game but not to construction in general. I have worked for a general contractor, as a project manager, for almost ten years in Houston - working primarily on residential remodel. I am confident in my construction abilities, but I am definitely still learning the investment process. I have spent the last few months listening to BP podcasts and talking to investor friends who are doing mostly fix and flips - some of which are for buy and hold and others are pure flips for resale. They are seasoned and are a good source of information. They do most of their deals through a hard money lender, then re-fi through conventional financing if they are going to hang onto the property. My goal is to go much the same route, at least on this first flip which I have under contract now. I understand that I need to get the ball rolling somehow to establish both lender and outside investor confidence in my abilities. My partner is a broker and very savvy about the Houston market, but he is also personally inexperienced when it comes to doing these flips himself. We have a house under contract that is currently a 3/1.5, with no true master. The layout of the house is mostly good except for the lack of a nice MBR. I think the bones of the house are in relatively good shape, but the house needs to be gutted completely in my opinion. The neighborhood is in transition with many other flips already occurring in the immediate subdivision (where I live) and seemingly the first wave of renovations have already occurred in the adjacent subdivision, where there is no real, clear line of demarcation between the two. Houses in the already renovated pocket are selling in the price point of roughly $170-210/sq ft (ARV) with houses that are roughly 1700-2600 sq ft; whereas the houses in my "subdivision" are in the $135-175/sq ft (ARV) range with most houses sized in the 1100-1800 sq ft range. The comps certainly support the numbers we are trying to work within with some room to breathe. On estimates and bids, I am running all of my costs high and my sales price low (at $160/sq ft), which is in the upper-middle range of renovated properties on comps that have been fixed like I plan to remodel this house. I think that there is definitely enough fat in this deal to make it work even if mistakes are made. I have my costs fairly precise and the numbers still look good. We are talking to a number of hard money lenders to try to get the deal done, but the guy that we would like to go through did not seem to give us a good hard look. I have the house under contract for $120, 000 and want to put between $75,000-90,000 into it. I am totally confident in my costs being stable given the scope of the renovation, my knowledge about the construction and the detail with which I have compiled my numbers. This seems to be a good deal, but my lender did not seem to like the deal as much because he said it is construction heavy. I am sure that most of his flippers go a different route that is less work and more "new paint, new carpet, new kitchen and baths, etc. I am proposing that we pour a 480 sq ft addition and the numbers work great even on the low side. If I do not build the addition the numbers are not nearly as favorable and the layout is questionable. The addition provides me with a nice, large master suite with a large walk-in closet and a spacious bath. Otherwise, the lack of a true master with a serviceable master bath seems like it would not garner the right money on the market. Does this sound like a good deal to anyone?! Both my partner and myself think so and so does another lender, which we can use also if we want to give up a few more points and a more involved process. I just want to get an outside perspective on this. I certainly am not married to this deal and we already have a meager cash offer for a few thousand to assign it to another wholesaler where we can make a bit on it, but I do think there is potential here. My other investor friend has looked at the deal and seems to think that I should scrap and try to make the deal happen however I can within reason given the numbers. That way at least I have one of these under my belt and some investment experience for a lender to look at the next deal. What do you think guys?